Section 87A- Income Tax Act, 1961

Hey all!!

Section 87A… I guess everyone is talking about this section since the announcement in Interim budget (which we will discuss here only).

So the question arises- What is this section offering ??
Why should we have the knowledge about this particular section??
Who all will enjoy the benefits of this section??
What are the conditions to be fulfilled and so on…..??

Lets start from the very beginning.. this particular section or should i say This Popular section was introduced by finance ministry in finance bill 2013 and since then people are enjoying its benefits.

Section 87A (AY 2020-21 i.e. FY 2019-20)

This section provides tax exemption to assessee upto Rs. 12500/-.
This means you will be able to reduce your tax liability by Rs.12500/- at once.

But there are certain conditions to get the exemption –

  1. It is available for INDIVIDUAL assessee only.
  2. He/she should be a Resident in India.
  3. The TOTAL TAXABLE INCOME should not exceed Rs.5 Lakh.
  4. No rebate to Non-Resident.

POINTS TO BE TAKEN CARE OF-

  1. Please note that this rebate is to be subtracted from the TOTAL TAX PAYABLE and NOT From Total Taxable income of the Assessee.
  2. This is a rebate and not a deduction.
  3. Tax slabs are same as before. There is no change in the slabs.
  4. The basic exemption limit of Rs. 2.5 lakhs is still the same and its not changed to Rs. 5 lakhs (please dont misinterpret the amendment.

FOR EXAMPLE :-

Case 1 – Total taxable income is Rs. 495000/-

Tax computation will be like this:

Upto Rs. 2.5 lakhs Nil 0
Above 2.5 lakhs but upto 5 lakhs 5% 12250/-

Total tax payable : 0+12250 = 12250
Rebate u/s 87A (Max. 12500)= 12250
Net tax payable = NIL

Case 2- Total Taxable income is Rs. 505000/-

Tax computation will be like this:

Upto Rs. 2.5 lakhs Nil 0
Above 2.5 lakhs but upto 5 lakhs 5% 12500/-
Above 5 lakhs but upto 10 lakhs 20% 1000/-

Total tax payable – 0+12500+1000 = 13500
Rebate u/s 87A (Max. 12500) NOT AVAILABLE AS INCOME EXCEEDS
RS. 5 LAKHS
Tax payable = 13500
Add: EC & SHEC @ 4% = 540
NET TAX PAYABLE = 14040/-

So people save your tax accordingly.

Enjoy reading 🙂

Thanks,

CA Tanvi Gupta
ACA, DISA, B.com
Partner
M/s APMT & Associates

(9310009823)

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